Is is a contract (you are self-employed, pay income tax etc) or is it employment (company employee, they withhold income tax, standard W2 form)?
Contracts pay more, lot at least they should, because the contractor has a higher risk, less benefits (e.g. no holiday entitlement), more cost (taxes, insurances) and liabilities (as a contractor you need to have insurance in case you screw up while working).
The line between contractors and regular employees is virtually nil, at least in technical jobs. In at-will states you have no protection at all, the only difference is who pays the taxes and benefits from the employer side.
Employees have a lot of expenses that contractors don't have. Payroll taxes, health insurance, other benefits, and generally there are more HR policies governing termination for an employee than a contractor, even in an at-will employment situation.
If you are an independent contractor, you need to pay the "employer" share of taxes, which is 7.6% (social + medicare). This is hidden if you are on W2, as W2 employees pay the "employee" share of 7.6%.
The other benefit of being on W2: disability & unemployment. Often times, many service workers get injured. If one is on W2, the employer's disability insurer covers the treatment and recovery of employees. I have seen many cases where many service workers are gravely injured.
Unemployment: if you are on 1099, you won't get unemployment benefits, when your contract ends after 12 months.
Health Insurance: W2 does not guarantee that. I worked as a security guard for two companies in 2002. One provided decent health insurance; the other provided super crappy health insurance (like max benefits of $20K per year, if you paid $50 per month)
Good point. I should have mentioned I was on a W2 there. Yes, contractors are treated like any other independent business, and enjoy much less in the way of legal protection.
In addition to the benefits you get as the contractor, agencies also don't want to hire sole traders as it could be argued they are actually employees. This would mean it's the agency's responsibility to withhold taxes, and the contractor would have rights to things like holiday and sick pay.
In the UK, contracting has some very attractive tax implications for highly-paid workers. Our tax service has created a complex set of rules that distinguish a contractor from an employee.
Correct me if I am wrong but the only material differences between contractor and employee status are
1. Who pay's the employer side income taxes. Contractors pay both sides.
2. Not eligible for benefits, you have to go to overpriced open market.
3. The contractor can deduct reasonable expenses they incur.
4. A contract will not necessarily be renewed whereas for an employee, the assumption is the job will be there in perpetuity.
It's not Microsoft's responsibility to provide benefits for contractors or subcontractors. It's up to those contractors' actual employer (assuming W2) or themselves (if 1099) to provide those benefits. If you're a contractor under W2, you need to take that up with your direct employer, not MS. If you're a 1099, you need to negotiate a sufficient rate to provide yourself with ability to provide yourself with the benefits. I formed my own S-Corp and hired myself as an employee when I was contracting. Better rates than going through a higher agency. Made sure my rate was high enough I could afford health insurance (~$400/month as an individual). You have to negotiate these things, not just take an offer or leave it. Group you're contracting for is always going to low ball it, if you accept it as is, you're at fault. Contracts are negotiable, not take it or leave it. If they say it's take it or leave it, you leave it - they're not going to be worth working for, anyway, and they're going to have a really hard time filling their need.
But working as a contractor demands a substantial premium anyway, because the contractor is responsible for self-employment tax.
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